UPDATE 1-Lululemon CEO looks beyond yoga wear for growth

Thu Apr 17, 2014 6:36pm EDT

* Broadening products amid success of casual wear collection

* Company sees 3-4 years of expansion left in U.S. market

* Men's line could become billion-dollar business (Adds details on U.S. store growth, international market, competition)

By Solarina Ho

TORONTO, April 17 (Reuters) - Lululemon Athletica Inc , best known for its trendy yoga wear, hopes to drive growth in coming years by expanding its range of fitness-related apparel and accelerating international plans, its newly appointed chief executive said on Thursday.

The United States, the company's largest market with just over 170 stores, continues to have room to grow, with another three to four years of expansion. So far, Lululemon has reached only two-thirds of the number of stores it can open there, Chief Financial Officer John Currie said at the retailer's analyst day in Vancouver, where the company is based.

Laurent Potdevin, chief executive, who was recruited to revive the company's fortunes after an embarrassing product recall and supply-chain issues last year raised questions about the growth outlook, highlighted Lululemon's global prospects, saying he wants to dominate the international market.

"Given the vastness of the (global) market, there are many cities in which the question is not, Will we have a store? but When will we have a store?" Potdevin said. "The global size of our playground is massive."

He added that the company would not have achieved an annual sales of $1.6 billion had it limited itself to the yoga market.

Casual wear, which uses many of the fabrics and technology developed for Lululemon's yoga apparel, will become a key component of growth, Potdevin said.

Lululemon's push into other product lines comes as it faces stiffer competition in the niche market it once dominated, and executives were quick to acknowledge the intense competition.

"Every price point and every channel, we're not alone in this market that we created," said Deanne Schweitzer, senior vice president of design and creation for Lululemon's women's line.

The company, which eschews traditional advertising for word-of-mouth branding, recently launched a limited collection of casual fitness wear called &Go to test demand.

"The recent success of our &Go capsule, which I'm sure you've seen, speaks to the elasticity of the brand," Potdevin said during his presentation.

"This lifestyle product collection resonated with our guests exceptionally well and will become an important part of our collection."

But Lululemon, which opened its first European store in London earlier this month, is still dealing with the fallout from last year's recall of yoga pants that were too sheer.

The company, which once boasted same-store sales growth of more than 30 percent, reported its first decline in quarterly comparable sales since 2009 last month, hit by weak post-Christmas holiday sales.

The company's rapid growth in recent years, combined with its March 2013 recall of the see-through yoga pants, caused supply chain issues last year. Delivery problems of products to stores and an overhaul of quality control have hampered performance.

The problems, combined with comments by the company's founder that some women's bodies "don't work" for its yoga pants, put tarnished Lululemon's feel-good, inspirational image.

Still, Potdevin said sales at the new London store, key to the plans to accelerate a European roll-out, were exceeding its target by 60 percent.

He sought to reassure analysts that Lululemon was focused on making sure its infrastructure could support its expansion plans, bring products to stores more quickly, and still be efficient enough to maintain strong margins.

Executives on Thursday repeatedly underscored Lulu's role in creating what became an extremely hot market as it presented some of its new products, which included samples of its growing men's and young girls' collections.

Potdevin said the men's line could eventually become a billion-dollar business and Lululemon's Ivivva stores for young girls have a half-billion-dollar potential. The standalone Ivivva stores are currently seeing sales of $900 a square foot, with double-digit comparable-store sales growth, executives said. (Editing by Jeffrey Hodgson, Matthew Lewis and Leslie Adler)

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